You get what you pay for. Or do you? When it comes to high-level talent, the answer is: Sometimes you do and sometimes you don’t.
Just ask sports fans. David Ortiz, the Boston Red Sox slugger, made $14 million in 2013, and was among the team’s highest-paid players. He led the Sox to the World Series championship that year and was named Series MVP. The star player with the outsized contract who lives up to the hype, and the salary, can lift all boats.
On the flip side, Samir Nasri, once one of the brightest stars in the Premier League soccer universe, has in the past two seasons become something of a black hole, virtually invisible on the pitch while soaking up a salary of $350,000 a week (over $12 million per season) for Manchester City. After scoring seven goals in 34 league appearances in 2012-2014, he scored just three in 31 appearances over the last two seasons before being sidelined by injury.
In sports there’s no shortage of statistical data available to measure a player’s on-field performance and, therefore, to justify compensation differentials. But those statistics should come with a warning: Past performance is no guarantee of future results.
In the traditional corporate workplace, statistical measures of performance are harder to come by than in sports (except, perhaps, in sales departments or investment firms). Assessment of potential and talent is more subjective, which can make a rewards system more fraught and harder to defend. Nevertheless, from the locker room (where salaries are figuratively, and sometimes literally, on steroids) to the boardroom, it’s a given that to attract the best talent you have to pay top dollar.
In major league sports, the compensation gap between top stars and all the rest can be enormous. But even the minimum salaries are well beyond those of most other working professionals, and far more than most athletes could ever expect to earn in other lines of work. This, said Liz Boardman, senior client partner in Korn Ferry’s Global Sports Practice, may blunt in big-league sports some of the challenges disproportionate pay for top talent poses in more traditional workplaces. While compensation is often the most important reward in other fields, “sports is a whole different ballgame because most players, at whatever professional level, are in it for the passion, the competition and to win,” said Boardman.
According to Tom McMullen, U.S. reward expertise leader for Hay Group, a Korn Ferry company, as the fight for top global talent intensifies, there are compelling reasons why organizations should reward the best people accordingly.
“Compensation-related issues dominate the list of factors that impact a company’s ability to retain top talent,” added McMullen. “You have to identify it and nurture it. Key employees have to reap rewards commensurate with their value and with their peers at other organizations but with a gentle balance so as not to topple the culture for everyone else.”
Pay has long been the subject of water cooler gossip. But most employees won’t know exactly what Dick or Jane in the next office is earning unless he or she shares that information. Unlike ballplayers, especially stars whose contract details are widely published on the sports pages, few companies make individual salaries public (with the exception of top executives of public companies, whose compensation is often a matter of public record). Employees can, however, easily compare their compensation to others in similar positions, inside and outside the company, using websites such as glassdoor.com, which can sort salary information by position and geography. This puts added pressure on companies to recognize and reward top talent.
Linda Hill, professor of business administration at Harvard Business School and faculty chair of the High Potentials Leadership Program, argues that to maximize the potential of the best talent, organizations must do more than offer top dollar. Whether an organization is able “to amplify and utilize that talent has to do with how you lead them,” Hill told IdeaCast. She said that organizations need to “build a culture where there is a sense of community, where people feel a part of something that’s bigger than themselves, that is also quite aligned with their own passions and their own identity.”
When it comes to compensation, however, “the 800-pound gorilla in the room is how rewarding top talent affects others,” said McMullen. Fifteen to 20 percent of employees typically “pull the organization through and can be seen as mission critical,” he says. “But 80 percent would probably consider themselves to be in that group.”
For that reason, most companies that have formal programs to reward key talent don’t broadcast their existence even to the management base. Knowledge of such rewards can be demoralizing or even infuriating for those not seen as “the chosen,” even if they are still valuable and valued employees.
Another reason for not disclosing such programs, even to those benefitting from them, is to keep expectations in check and tamp down a sense of entitlement.
Thus, in many organizations even top talent may not know they are part of a formal rewards program. But McMullen argues that this is part of the compensation problem. Employees should be made aware that they are getting extra benefits; more frequent raises; more restricted stock option grants; more opportunities to work with C-level executives; and more conversations with HR and senior management about goals and hopes for their future within the company. Making top talent feel special is the goal. In that sense, rewards programs do what has long been done informally, and naturally, in many companies: Recognize strong performance and incentivize potential.
Despite the risk that a secret rewards program could become public knowledge and cause widespread disaffection, the need for management to attract and keep top talent makes it a risk companies have to take, according to McMullen.
McMullen believes formalizing the process brings the discipline needed to retain high-value employees in a competitive market where turnover is costly. “The best companies were doing this before these programs came into vogue,” he said. “What’s new is the consistency, rigor and formalization of efforts to nurture talent.
“Nevertheless, one-third of 600 companies in two studies we’ve done haven’t identified key talent, and roughly four in 10 haven’t even defined what key talent means for their firms,” said McMullen. “That’s step No. 1.”
As rewards programs are put in place, he added, organizations need to be cognizant of how such programs can exacerbate or mitigate concerns about pay and opportunity equality in the workplace, especially with regard to gender and ethnicity.
Once that’s been done, said McMullen, “you need to show your top talent not only the money but also the love in non-financial areas of reward such as quality time spent in discussions about career development and meaningful future roles.”